Need Help With Taxes

[Crash74]

This is my first full year playing poker on-line. I've been tracking my sessions daily by site. My spreadsheet shows date, site, beginning balance, and ending balance. So, each day at each site shows either a winning session or losing session.

I live in Wisconsin, so I pay both federal and WI state taxes. Here are my current totals when I add up my winning sessions and losing sessions:

Wins: 5,362
Losses: 3,568
Net won: 1,794

For federal taxes I can deduct the losses, so I will be taxed on the net of 1,794. For my state taxes, though, I cannot deduct the losses. Therefore, I am taxed on 5,362. If I approximate 25% taxes, fed taxes will be 449 and state taxes will be 1,341 for a total in taxes of 1,790. This basically leaves me with a total profit for the year of $4.

Does this sound correct? Does anyone have any experience with this, especially the state taxes? If I was winning even a little less, I'd actually be losing money after paying taxes. Is there any way to legally get around this? Thanks in advance for any help you can give me!

Crash74

[Panace50]

You are legally allowed to deduct certain expenses even if you are not a professional gambler. Please check with a good gambling tax professional, as I do my taxes a different way as a full time player, and more of my expenses are deductible.

BTW, Wisconsin was listed as one of the states that specifically prohibits online gambling. So please be careful dealing with your state taxes. However, you do still need to report your winnings.

http://www.gambling-law-us.com/State-Laws/

http://www.gambling-law-us.com/State-Law-Summary/

If you are only withdrawing occasionally off the net it is possible you could make a case that the year was one long session and your withdrawals were your only wins.

It seems that IRS is happy enough to have gamblers pay taxes that they are not totally crazy about going after to the full extent of the unfair rules built in the tax system.

[fnurt]

No way does any state have an income tax anywhere close to 25%.

[Louie Landale]

Its hard to imagine that you cannot deduct your losses. Because if you could NOT do that then why is the "daily net" the amount you "won". Why not your weekly net? Monthy Net? Those would reduce your gross winnings. Couldn't it realistically be the "amount won on each hand". So if you won $40 on one hand and lost $30 on another, you'd have to pay taxes on the $40. Nobody could overcome that. Imagine a blackjack playing normally playing for +/-1%, is now paying 25% tax on every hand won?

If you won $5000 in daily totals one year but lost $8000 for a net loss of $3000, would you still need to pay taxes? No.

I'm sure you can deduct your losses and its your net at the end of the year. Its my understanding that you cannot deduct net LOSSES at the end of the year; so if your net was in the negative then it doesn't go on your taxes.

Check your tax consultant, then claim your net win; ignore your net loss (which may never happen).

- Louie

Legally avoid? Yes. Keep a notebook of daily wins and losses in a live cash casino; more specifically one that shows a fairly big net loss. The IRS must prove its a forgery before they can ignore it. They CAN prove it if you write it down at the end of the year since they can do age testing on the ink; and they may be able to prove it if you write down days that you were doing something else, such as visiting Mom out of state or playing online for 12 hours, or you made phone calls from home. They may also be able to prove it if you showed a very skewed sequence of losses without a reasonable number of wins to make it look realistic. Do not interpret this as anything illegal, and check with your tax consultant.

[cardcounter0]

I don't think I would pay to much attention to Louie, as a lot of what he says is wrong.

Yes, many States want to tax your winnings but have no provision for writing off your losses. Indiana comes to mind, as they have started clipping poor slot machine players with a nice State tax withholding when a jackpot is hit, and no way the players can write off their slot losing at the end of the year.

I am not a WI tax expert, you should consult one, but here is what I would do in your situation. Pay the Feds by showing your winnings ($5,362) and deducting your losses ($3,568) paying your federal tax on the net ($1,794).

Net your wins/losses on State Form and show $1,794 in winnings and pay your state tax on that. This amount will match the amount you are paying Fed Taxes on so you shouldn't flag any audits.

[Crash74]

Thanks so much for the responses so far... very informative! I did want to make one correction in my original post. Someone mentioned that states do not collect 25% in taxes. That was my fault for not doing more research. I guess a 6% state tax is more reasonable, so my numbers would look quite a bit different.

Wins: 5,362
Losses: 3,568
Net Wins: 1,794
Fed Tax at 25%: 449
State Tax at 6%: 323
Net Profit after Taxes: 1,022

I apologize for exaggerating in my original post. It still seems like the state tax laws are very unfair.

Someone mentioned about internet gambling being illegal in Wisconsin, so I should be be very careful about paying my taxes but make sure I do pay my taxes. I'm not sure what that means. I don't know how I can pay my taxes and at the same time be careful about it being internet gambling income. Any additional advice? Thanks again!

Crash74

[cardcounter0]

Yes, you should only pay $107 in State taxes on your winnings. There probably isn't any provision in the State taxes about not netting wins/losses - so go ahead and net it.

The Feds are particular in wanting winning "sessions" and losing "sessions" kept seperate, and not to net the results.
However, they have not provided a defintion of what a session is. For online purposes their is a good argument to be made that your session extends from buy-in to cash-out, although you have chosen to define session as daily.

Don't worry about the illegal thing. You are declaring income, I wouldn't be too specific as to exact source. Besides, if the State tried to use that as evidence against you, you have an out of not paying taxes at all due to rights against self-incrimination. Hence, taxing bodies don't share information with legal authorities, or try to press a case from it.

[Vazh]

According to a tax advisor I talked to a session is defined as the time between buying chips and cashing out. So if you have a Neteller account, when you deposit into a site your session started, when you withdraw back to Neteller your session ended. Your winning sessions get taxed as income, your losing sessions go down as deductions.

[Grivan]

There is a problem with this definition though. Say you deposit money, and are winning, but you don't withdraw during the year. Or, say you deposit a large amount on December 15th does it count as losses for the year, if you don't withdraw it.

I can see the IRS having a huge problem with this kind of reporting.